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ESG for SMEs: optimism amid challenging trading conditions

Author: ICAEW Insights

Published: 24 Aug 2023

More than two-fifths of SMEs say that current economic conditions are worse than they were during the pandemic – but amid the gloom, Bibby poll reveals signs of resilience and confidence.

SMEs are grappling with the worst operating environment they have faced for 15 years, according to a study of nine markets from Bibby Financial Services.

Published on 14 August, Bibby’s Global Business Monitor 2023: SMEs in a Changing Economic Landscape examines the fortunes of enterprises in the UK, Czechia, France, Germany, the Netherlands, Poland, Singapore, Slovakia and the Republic of Ireland. 

In its poll of businesses across those territories, the report finds that SMEs’ growth is currently being stifled by a three-pronged assault of inflation (55%), energy costs (49%) and uncertainty over local economies (28%).

More than half (51%) of the businesses surveyed say that customers are taking longer to pay this year than last, and a similar proportion (50%) are being forced to pass on higher costs. More than a third (35%) of respondents have written off payments owed at some point in the past 12 months, and almost a third (31%) report that certain customers and suppliers have gone into administration.

The ongoing conflict in Ukraine is having a “prolonged and significant” impact on SMEs – particularly those in closest proximity. More than half (54%) of businesses suggest that the war has driven up costs, while a quarter (25%) cite supply-chain issues and 18% say they have had to seek new suppliers.

For more than two-fifths (42%) of SMEs, current economic conditions are worse than they were during the pandemic. At the emergency end of the spectrum, 26% say that they have insufficient cash flow to grow – and 10% don’t have enough funds to effectively support their day-to-day operations.

Writing in the report, Bibby’s Global CEO Jonathan Andrew cites research from Bloomberg Economics anticipating that the European Central Bank will increase, and subsequently decrease, rates over the coming months – settling at around 4% by year end. Meanwhile, Bloomberg estimates, the Federal Reserve will open 2024 with interest rates at 5.5%.

Although Bloomberg’s forecast suggests that UK rates will reach 5.75% by the end of the year, other estimates indicate that the final figure could be more like 6%. 

“Whatever the case,” Andrew writes, “it’s clear that the post-2008 era of low interest rates has ended. This draws to a close access to cheap finance for individuals and businesses alike.”

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Amid the gloomier findings, however, the research uncovered some genuinely encouraging signs. Some 85% of SMEs are confident about their prospects for the remainder of 2023 – with the figure rising to 90% in the Republic of Ireland – and 59% have seen sales growth over the past six months, hinting at the early stages of a positive trend.

“SMEs continue to face challenging conditions,” says Simon Gray, ICAEW’s Head of Business. “It is something we hear from ICAEW members working across a broad range of sectors and industries.” 

The challenge of late payments has been cited regularly by members, Gray explains, with one member reporting that because of cash flow pressures, “everyone is paying everyone late.” 

Consumer-facing businesses, including retail and hospitality, report that obtaining credit is more difficult. Construction has been hit hard by rising interest rates and the impact of that on the mortgage market. 

“The difference this time is the multitude of challenges, with no immediate end in sight, hitting businesses which, given their size, have less resources to cope,” says Gray. “Despite this, businesses remain resilient and are adapting to conditions. At a recent small business roundtable hosted by ICAEW, the point was made that businesses employing a chartered accountant were better equipped to navigate the storm, with a strong emphasis on cash flow management, cost control and assessment of finance options.”

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